Taxes: How San Diego measures up

City's taxes are far lower than those in other major California cities

Having an anti-tax attitude is about as San Diego as fish tacos, surfing and 70-degree weather.

City residents have long been averse to tax increases — most recently displayed by the resounding rejection of a proposed sales tax hike last month — and have strongly opposed any move by the city to increase fees.

This has put San Diego below some other major cities in California in terms of how much revenue it collects each year so it can provide basic services, such as public safety, parks and libraries. One recent estimate showed the city generates $81 less per resident by comparison, a difference that equates to $100 million fewer dollars going into city coffers annually.

San Diego vs. other cities

Average business tax by city

San Francisco: $5,253

Los Angeles: $1,281

Oakland: $774

San Jose: $225

San Diego: $79

Impact: Most cities levy business taxes as a percentage of gross receipts or a fix charge per employee. San Diego levies a flat annual tax depending on the size of business: $34 for businesses with 12 or fewer employees; $125 for businesses with 13 or more employees, plus $5 for each employee. If San Diego were to increase its business taxes to the statewide average of $610, the city would generate an additional $94 million annually.

Annual revenue from commercial parking taxes

Los Angeles: $85.4 million

San Francisco: $64.5 million

Oakland: $14.2 million

San Diego: Zero

Impact: If San Diego were to enact a 10 percent tax — the low end for other cities — on parking fees collected at commercial parking lots and structures, the city would generate an additional $31 million annually.

Hotel taxes

Percentage by city

Anaheim: 15 percent

Los Angeles: 14 percent

San Francisco: 14 percent

San Diego: 10.5 percent

Impact: For every 1 percent increase in the hotel tax, San Diego could generate an additional $12.6 million annually.

Utility users tax

Revenue generated annually per capita on fees of 1 percent to 10 percent on utility bills, such as electricity, gas, phone, water, cable and trash.

Los Angeles: $150.64

Oakland: $123.77

Sacramento: $119.01

San Francisco: $97.34

San Diego: Zero

Impact: If San Diego were to implement fees totaling $74 annually — the average of peer cities in California — the city would generate an additional $100 million per year.

*A public vote would be required to change any of the above San Diego taxes.

OTHER FEES

Storm water: The city spends nearly $38 million annually to treat urban runoff but only collects $6.5 million in storm drain fees from residents and businesses. The city ranks 117th out of 122 California cities in the amount it collects. Single-family residences pay a flat fee of 95 cents per month while multi-family residences and businesses pay based on water usage. The city would need to charge nearly six times as much to recoup its costs but can’t without voter approval.

Trash collection: The city spends $34 million annually to pick up trash and another $15 million to handle recyclables. If the city were to charge to recover its costs, the average household would pay $15.16 each month. The city is prohibited by The People’s Ordinance, which voters approved in 1919, from charging for trash pickup for most residents. A public vote would be required to overturn the ordinance before the city could assess a fee.

Beach parking: San Diego doesn’t charge for parking at the 63 city-owned lots near its beaches as many other cities do. The nearly 9,000 spaces could provide significant revenue depending on how much the city charges. The City Council has authority over public parking fees.

Source: City of San Diego Citizens Revenue Review and Economic Competitiveness Commission

Ted Bonanno: Corporate law attorney and major in the Marine Corps Reserves

Alan Gin: University of San Diego economics professor and writer of the Index of Leading Economic Indicators for San Diego County

Andrea Moser: Vice president of communications at Burnham Institute for Medical Research

Michael Morton: CEO of the Brigantine Restaurant Corp.

Bob Nelson: President of Bob Nelson Associates, an advertising and public relations firm

Gangaram Singh: San Diego State University associate dean, business professor and director of the Center for International Business Education and Research

Stephen Standifird: University of San Diego associate dean and associate business professor

The city charges significantly less than others for business taxes, hotel surcharges and stormwater fees. San Diego also doesn’t collect any money for trash collection, commercial parking fees, public parking near beaches or user fees on utility bills — major sources of revenue for many cities.

There’s renewed focus on San Diego’s tax rates because of a $73 million budget deficit and a looming $2.1 billion pension gap that threatens to overwhelm city finances in coming years. Mayor Jerry Sanders and the City Council are contemplating more cuts by July 1 after voters rejected Proposition D, the sales tax hike.

A citizens commission — filled with business leaders and economics experts — has identified several taxes and fees that it says could be increased and generate an additional $270 million annually for the city. The rub is that nearly every increase requires voter approval in one form or another.

Bob Nelson, an advertising executive who chaired the Citizens Revenue Review and Economic Competitiveness Commission, an advisory panel formed by the City Council, said the city’s tax policies have come at a price as recent budget cuts have shown.

“San Diego is the city of the free lunch,” said Nelson, who is also chairman of the San Diego Convention Center Corp. “You just can’t sustain core municipal services without robust revenue sources. ... I like it when people say government should be run more like a business. I agree. San Diego isn’t doing it and it hasn’t done it for decades.”

Councilman Carl DeMaio said any talk of increased taxes or fees is a nonstarter.

“It’s woefully out of step with political realities and what the shareholders of the city of San Diego — you know, the people who actually own our city government — have told us they want us to focus on,” he said. “They don’t want to raise revenues. They’re barely making ends meet right now. And so I would just encourage my colleagues, take all the revenue and tax ideas and put them off to the side.”

DeMaio has proposed a comprehensive plan to solve the city’s financial problems by adopting sweeping changes in how the city operates. The plan would cut pay for most non-public safety workers, freeze salaries for all city employees, eliminate taxpayer-funded retiree health care for current workers, and categorize certain pay as bonuses that should not be counted toward pensions.

His plan includes no fee or tax increases.

San Diego's anti-tax reputation is well-deserved.

The city rejected three tax increases from 1995 to 2008 while the state’s other top 10 cities approved tax hikes at a rate of nearly 60 percent during the same period, according to Steve Erie, a political-science professor at the University of California San Diego who is cowriting a book on the city’s financial woes.

Erie said the city’s anti-tax culture took hold in the late 1970s and grew into a nearly unstoppable force by the 1990s with intensity not found in other parts of the state.

“We behave very differently,” he said. “San Diego really wants the services but doesn’t want to pay for them.”

Critics say the public doesn’t trust the city because of its financial mismanagement and Erie said residents “believe that there’s fraud, waste and corruption.”

The ability for a tax increase to win at the ballot box has been severely hampered by financial decisions made by city leaders. Benefit boosts granted to city workers in 1996 and 2002 without identifying a way to pay for them spurred a pension deficit that has outraged the public. Many fear any tax hike would simply go toward six-figure pensions and do little to avoid future budget cuts.

While people may argue whether or not San Diego’s taxes are too low, there’s no denying how the city compares with other major California cities.

San Diego doesn’t charge a tax on parking structure owners like Ace Parking for what they collect. Most other large cities charge between 10 percent and 25 percent. Los Angeles generates $85 million annually from commercial parking taxes while San Diego raises nothing.

San Diego’s business taxes are also among the lowest of the state’s largest cities with an average of $79 collected per company. The statewide average is $610. If the city increased its rates to the average, it would generate an additional $94 million annually.

One of the arguments against raising business taxes is that it could push companies to leave San Diego. The commission said there are several other factors — state corporate taxes, the existence of a capable work force and the cost of housing and land — that are far more important to businesses when deciding where to locate.

“Firms that are involved in biotechnology would make decisions based on things like the fact that there’s a biotechnology cluster here in San Diego, that they have access to UCSD and so on,” said Alan Gin, a University of San Diego economic professor who sat on the commission.

“They wouldn’t locate in Fresno because the tax level there might be different.”

Lani Lutar, head of the San Diego County Taxpayers Association, said the city shouldn’t increase its taxes just because everyone else has higher taxes.

“That’s what other cities did when they compared pension benefits,” she said. “They would say ‘Well a neighboring city is offering this so we need to.’ So pretty soon you’ve got this chain reaction that leads to a lot of cities doing things that aren’t necessarily in the best interest of taxpayers.”

The low taxes in San Diego have a dramatic impact on how the city is run. The operating budget of $1.1 billion funds a broad range of services, from police and fire protection to parks and libraries. That pool of money is reduced when $34 million is needed for trash collection and $32 million is required to subsidize stormwater expenses because fees are either nonexistent or cover only a fraction of costs.

The crushing defeat of Proposition D has city leaders gun-shy about putting another tax hike on the ballot for 2011 or 2012. And there’s only a handful of options that don’t require a public vote.

For example, the City Council could begin charging for public parking near beaches, assess a fee for emergency police and fire responses or allow advertising on city property as ways to raise revenue. However, none of those would generate nearly as much revenue as the big-ticket items that need voter approval.

Nelson said he doesn’t see much of a way out for city leaders unless voters have a change of heart.

“They’re just caught between a rock and a hard place and a vice closing in on the other side,” he said. “There’s nowhere to go for the money.”